FCC to return 85% of deposits from NextWave auction

The FCC yesterday said it would return the bulk of the down payments made by wireless carriers for spectrum that has been returned to NextWave Telecom and remains the subject of litigation.

In its order, the FCC said it will return 85% of the $3.3 billion in deposits made by winning bidders in the January 2001 auction. The carrier affected the most by the decision is Verizon Wireless, which will receive more than $1.4 billion.

Verizon Wireless led the lobbying effort for the return of deposits to the carriers, which have lost hundreds of millions of dollars in potential interest earnings as the government has held the money without distributing the spectrum, which an appeals court last year ruled the FCC must returned to NextWave. The case will be heard by the Supreme Court during the next year, but even a victory by the FCC at that level would not guarantee that the auction winners will receive the spectrum.

Because the FCC likely will not be able to award the spectrum for years--if ever--Verizon Wireless petitioned the FCC to cancel the auction results. But the FCC refused, deciding to keep 15% of the deposits to preserve the “integrity” of the January 2001 auction in case the government is able to award the spectrum.

This obligation could impact the timetable for consolidation in the U.S. wireless industry that most analysts believe is necessary to create sustainable business models. For instance, Verizon Wireless must be prepared to pay the $8.8 billion it bid in the auction, instead of being able to use those funds to pursue a merger or other capital projects.

Last fall, Nextwave, the FCC and the auction winners agreed on a settlement that would have given NextWave $5.85 billion, the government $10 billion and the carriers the spectrum, but Congress did not ratify it. There was speculation that the deal might be resurrected this spring, but Verizon said it would not participate until its deposit was refunded.

The FCC order is not enough to bring Verizon Wireless back to the negotiating table, according to a spokesman for the company.

“This is a step in the right direction … but we need the slate wiped clean,” the spokesman said, noting that the government still has $260 million of the carrier’s deposit. “Our position is that the auction is void. The FCC disagrees with that position. We are going to look at our options to resolve these differences.”

In addition, a debt-conscious market and a tight economy may discourage negotiations that force carriers to spend billions of dollars quickly, said Rudy Baca, wireless analyst for the Precursor Group. For instance, Verizon planned to pay for the spectrum with proceeds from an IPO, but the IPO market is so poor that the carrier may not want to pursue that option.

“I don’t think this is enough to revive the settlement talks,” Baca said.